All Forum Posts by: Jonathan H.

To me, Airbnb Short Term is done.   Covid forced adaptation to long term, by the room, and whereas an 8k/m net house turned into a 4k/m net, the time / attention required cut to 5%, and I'm not needing to go back.   Coliving, instead of STRs, my new jam. 

But, if your just starting out like me, and have a proven track record to cashflow rentals ( airbnb arbitrage ) and are ready to start buying, the STR strategy breaks a fundamental link in the BRRRR Model.

My understanding: ( pls correct where I am wrong ) - Is that to finance the first house, you need to show 3x the mortgage payment in income.  Lets say you made 108k/year the last 2 years.  108k/12 months = 9k/month.   9k/3 = 3k.  So you can afford a mortgage payment up to roughly 3k/month. 

If you follow the BRRRR model and its time to repeat, you need to account for that 3k/m mortgage to qualify for the next one. So, ideally you get a lease signed for 1.3x the mortgage cost, it offsets the expense and your qualified again? Is that about right?

But what IF your real gift is in cash-flowing that house by not requiring leases?  Month to month tenancy through Airbnb forming coliving spaces will earn 8k/m in the house that's got a 3k/m mortgage.  After expenses, about 4k/month profit if done well. 

Then you dont have the lease to show the bank!  Unless you wait 2 years, file the taxes, show the income that way, your business model just froze.  

Strategies?  Corrections?  Feedback?

Im digging into this and researching it daily, and this is the best idea I have got. 

Instead of my running the Coliving space, move operations to my LLC. Have my LLC run the business, and have it sign a lease with me for the space at 1.3 x the mortgage rate.  Present that signed lease to the broker to forge the next lease.

Would that work?  Got better ideas?  

2nd best idea:   Find the house you want to buy, offer to lease as master tenant with option to buy, ( and plan / intent to buy ). 

Then, lease it to your LLC.

Then approach the banks for a mortgage to purchase the house with the lease, already cashflowing. 

Would that work? I am only interested in fully legal, above board ideas. In both of these ideas, the LLC would actually cashflow the property and pay the actual lease payments.

2nd Question for fun: I am learning that forming a trust, which runs a C Corp ( instead of an LLC ), provides a legal buffer that protects your net worth from frivolous lawsuits legally. The trust does no business except with the C Corp, leasing houses/equipment, at a profit. the C Corp makes little money and has no possessions, thus, if sued, lawsuits would fall short.

Anyone have experience and/or feedback about this?

I understand this is also a perfectly legal and above board way of reducing tax liability through effective tax rates from roughly 28% to roughly 15%, and a common practice among the wealthy.   Would love feedback!

This is a brilliant answer, all the way down to the bonus depreciation.   Brilliant. 

What market are you investing in?

Are you actively engaged in this type of investment?  

If so, hows it working so far?

Yes.  Don't break even on your mortgage.  Instead, turn a 3BD house into a 4.  Take the mortage payment, divide it by 4, and double it.  Thats what the rooms are.  That's your target.  Furnish it well.  Pull up Pinterest on interior design and aim for that.  Don't pay retail for expensive furnishings.  Search Craigslist for "Moving Sale" and pay 40% of the retail value for a whole house of Furnishings.  Hire a housecleaner, and pay him/her well, but hourly, to come 2x/week.  Hook up fast internet.  Buy all linens new, but inexpensively.  They need regular replacement. 

List on Airbnb, monthly only, with the first line "seeking long term housemates".  Make sure your photos look 4 x better then the average.  Use the airbnb photographers.    Your asking price on Airbnb will be 85% of your target price.  ( they will charge the other 15% and keep it. ). 

Screen everyone.  Be picky and let rooms sit empty for a while.  Remember 50% occupancy is break even at this point.  Within 3 months you will have raving reviews, seldom occupancy, and be earning double your mortgage payment - utilities.   When you get a dud ( leaves dishes, disturbs others ), airbnb will deal with getting him out under the "your not obligated to have anyone in your house that your not comfortable with" clause.  Once you have confirmed they are stellar, rebook direct and keep 100% of your target rate funds.  

Then, figure out the financing to repeat.  Thats why Im here, Im learning the financing to start buying.   

Without a lease in hand you can't show the property is cash-flowing at 1.3x the mortgage payment to a bank, which is what BRRRR would use to offset the income requirements to get another house.

My best idea on this ( feedback definitely wanted ).. form an LLC. Let the LLC Run the business and sign the lease to me to do so at 1.3x the mortgage payment. Use that lease to offset like any other lease, the expense to qualify for the next house.

Even better, form a trust, let it hold the house, and earn the bulk of the income to pay taxes legally at 15% instead of 28%, and to pad the investment from frivolous lawsuits.   ( this is what I am learning about now ). 

Hope that gets the ball rolling.  PM me and Ill send links of my current projects wherein I am doing exactly this if you want some inspiration. 

For me, a 3BD house costs about 15k to fully prep, furnish, initiate, and then generates about 2.5k/m net, so break even is typically about 6m on those funds and then its just cashflow. 

House rules.  Lots of them, reasonable ones, that protect them from each others negligence.  

Automate all your communications through Smartbnb ( cheap and the best ), and dont be fooled by the expensive con artists competing with them. 

If you are a bad *** host and create a space without weird "landlord in the house" power dynamics, nobody will want to leave.  Folks will come for 2 months, stay for 8. 

I really appreciate your point of view here, David. 

Given the Covid Landscape, where would you focus on your STR strategy right now?

Personally I have 2 STRS, one in Talent, OR - wherein Covid is so low in numbers they are doing active contact tracing ( as of today ), and 

One in Superior, CO, near Boulder.  Both had to be converted to long term, by the room, to still generate net income, but they average $400 net per room, which is still high. 

Would you even try your strategy right now with the rate of acceleration of Covid?   

If so, where would it feel safe to do so?

Above board legal Airbnb is a bit tricky because laws generally fall into 3 categories or somewhere between:  defined and strict, defined and flex ( rare, but check texas :), or undefined ( not stable, because they will change ).  

At the same time, even defined yet strict areas will often have small tickets for breaking the rules, which many operators consider a cost of doing business, in fact, many businesses are built that way.  

Do you want to invest in texas?  In that case you might be in luck.  

If not, you probably are going to need to settle for less high demand areas to be able to scale anything related to airbnb, which means less returns... but its not so bad if your creative.  

My personal angle is to go for unincorporated areas outside of city limits for somewhere I want to be.  Sure, its a lot less $$ per dollar than downtown, but I personally grew up 'out of town' so its familiar, and theres lots of wild nature at my finger tips at an airbnb house of mine.  

Its an odd market, most go for 1BD houses, or studios, because they are easier, simpler, higher in demand, and more scalable.  I, for some reason, have aimed for 5 BD houses that folks would want to throw a wedding reception in, up in the hills, out of town, with nature and views and walks. 

It's an odd market, more high maintenance, and yet, it's just my style. 

That said, covid has destroyed Airbnb completely for now in both the places I had houses set up.   The old market is gone.  I quickly adapted, anticipated a demand for rooms for rent outside of large cities, which were designated safe zones, with staff performing CDC level disinfecting 2x/week in the commons.   That worked, and Im now easily at full occupancy and generating 3k/month on one house net, I shut the other down as the owner wanted to sell. 

At this moment, getting into airbnb is a gamble for sure if you don't know the market, and theres a damn good chance that just traditional rental is the best path to really feel you can count on something till the pandemic passes. 

I was able to rent a house for 4500 in the Oakland hills 40m from SF and get it up to 12k/m average in Airbnb revenue, which was roughly 5k/m net, but it took pouring my heart into it and it was def the labor intensive path.  After covid hit I reset the house to 'by the room' and it was able to generate about 2k above costs, which aint bad for less than 1h/week of attention required.  Alas, landlord decided to sell so Im back to the drawing board. 

Love this approach!   

@Myka Artis -  Thank you so much for your thoughts, how would you go about turning an airbnb into a corporate rental?

@Rob Massopust - 

re: Try 30+ Day rentals either as Airbnb but more focus on the furnished corporate rentals. I have a great strategy that is so much better than straight AirBNB. I call it Corporate AirBNb hack. PM and will send you some details. its so good I do not want to display it publicly

Thank you so much for your thoughts, tell me more about this please

Hi!  

Perhaps too impulsively, I invested 20k to set up an Airbnb in an HOA governed neighborhood: one of the few left unregulated outside of Boulder, CO, and the neighbors just informed me that there are several clear rules I am breaking with my Airbnb Ads, he has found them and requested I stop at threat of calling in the HOA.

Im looking at creative solutions... 

ROOMMATES

A fall back is to go with roommates of course, that would cover the rent and given its furnished I might make back my investment capital in 2-3 years. 

CORPORATE RENTALS

Can I do corporate rentals with a 30 day min?  If I do that, what might that look like?  I found several options on other posts but have not found any sites that seem to be operating significantly in my area. 

AIRBNB W 30 DAY MIN

Seems reasonable, although technically the HOA rules state that any commercial use is forbidden and that they will interpret an airbnb listing as evidence of such.

Any other options?

I have been offered an out, in 8 months, which means that I could get roommates to cover the rent, and move all the furnishings into a new home to recoup 70% of the investment capital... Thats definitely a possibility. 

Would love to hear what others would do in the same situation. 

hi!  May I ask Folk for an update about this?   I understand that in Boulder city now you have to be the homeowner and I’m actually interested in leasing a place in making the rooms available on Airbnb while inhabiting it.  So the city of boulder is out... unless a landlord is willing to get that permit for me.  

So what about the other cities like lafayette and Longmont.. or just outside of Boulder City limits?  Do you also have to be the homes owner?